Recent Changes in the Law Affecting Auto Liability Insurance
To: All Insurers Writing Automobile Liability Insurance in the State of California
Date: November 8, 2002
This Notice is to advise all insurers writing automobile insurance in the State of California of recent changes in California law and regulations which will require certain insurers to file new class plan applications with the Department pursuant to Title 10, California Code of Regulations, Subchapter 4.7, Sections 2632.1, et seq.
- Principally at Fault Accidents: Title 10, California Code of Regulations, Section 2632.13(c) provides that a driver may be considered to be principally at fault in an accident if, among other things, the total loss or damage caused by the accident exceeded $500.00. This amount was based upon the threshold for accidents reportable to the California Department of Motor Vehicles ("DMV"). Effective January 1, 2003, SB 1590 increases the $500.00 minimum for accidents reportable to the DMV to $750.00. Therefore, on November 1, 2002, the Department filed with the Office of Administrative Law a Change Without Regulatory Effect, amending the $500.00 threshold in Section 2632.13(c) to $750.00. Effective January 1, 2003, a driver may be considered to be principally at fault in an accident if the total loss or damage caused by the accident exceeds $750.00 and the driver's actions or omissions were at least 51% of the proximate cause of the accident. Therefore, effective January 1, 2003, for purposes of determining a driver's Driving Safety Record (the first mandatory factor) and for purposes of determining eligibility for a Good Driver Discount Policy, insurers shall apply the $750.00 threshold. Insurers shall reflect this change in the next class plan application which they file with the Department.
- Persistency: Amendments to Title 10, California Code of Regulations, Section 2632.5(d)(11), which define the optional rating factor of persistency, took effect on September 26, 2002. That section generally provides that at policy renewal, persistency credit may be applied by an insurer or affiliate for a current policyholder. Effective immediately, any class plan application which an insurer submits must reflect the amendments to Section 2632.5(d)(11) and include a revised sequential analysis, if necessary. Any application not in compliance with the new regulation will be rejected at intake and will not be approved. No later than January 15, 2003, all insurers must have class plans on file with the Department which comply with Section 2632.5(d)(11).
- Accident Verification: The Department's proposed amendments to Title 10, Section 2632.13(i) were approved by the Office of Administrative Law on October 31, 2002, and take effect on November 30, 2002. This regulation requires an insurer, in determining a driver's at-fault accident history, to accept a declaration, under penalty of perjury, as to at-fault accident history. Section 2632.13(i) includes compliance provisions. Among other things, an insurer not currently in compliance with section 2632.13(i) shall, within 120 days of the effective date of the amendments, file class plan and/or rate applications which comply with the new provisions, including a revised sequential analysis, if applicable.
- Proxy Weighting Methodology: The Department's proposed amendment to Title 10, California Code of Regulations, Section 2632.8(c) establishing the proxy weighting methodology to define the weight of a rating factor was filed with the Office of Administrative Law on November 1, 2002. The Office of Administrative Law's decision on the rulemaking file is expected by December 16, 2002. If the Office of Administrative Law approves the regulation, any class plans submitted after the effective date of the amended regulation shall be submitted using the proxy weighting methodology.
Insurers amending their class plans now to reflect the new persistency and accident verification regulations may use the proxy weighting method to determine the weight of a rating factor.
Any insurer not in compliance with these new provisions as of the required compliance date will, in appropriate circumstances, be deemed to be in willful violation pursuant to California Insurance Code Section 1858.07.
Additionally, during the course of routine review, the Department has discovered that some insurers may be unclear on issues relating to excess vehicles, secondary drivers, and annual mileage rating. Therefore, the following information is provided to assist companies in completing compliant class plan filings.
- Rating of Excess Vehicles: If there are more vehicles on a policy than drivers, the insurer shall assign either a rate for an undesignated driver or the lowest rate for all driver related factors to the excess vehicles based on the insurer's classification rating plan (class plan) in accordance with Title 10, California Code of Regulations, Section 2632.5(b). The calculation of the rate (relativity) of the undesignated driver for each driver related factor should be derived from the sequential analysis in accordance with Title 10, California Code of Regulations, Section 2632.7.
- Secondary Driver: Insurers may develop an optional "Secondary Driver Characteristics" rating factor in accordance with California Code of Regulations, Title 10, Section 2632.5(d)(13) composed of a combination of the Safety Record, Years Licensed, Gender, Marital Status, Driver Training, and Academic Status. However, this does not authorize "stacking" of driver safety record points of all principal and occasional drivers assigned to each vehicle. Insurers desiring to charge for secondary drivers must file for and obtain approval of a secondary driver optional rating factor which meets all requirements applicable to any other optional rating factor. Insurers cannot combine the driving characteristics of multiple operators of a single vehicle in lieu of filing a secondary driver optional rating factor.
- Annual Miles: Pursuant to California Insurance Code Section 1861.02(a) and Title 10, California Code of Regulations, Section 2632.5(c)(2), the second mandatory automobile rating factor is the estimated number of miles driven annually for the twelve months following policy inception. This should be based on the applicant's estimate and does not authorize an insurer arbitrarily to estimate the number of miles a policyholder will drive based on, for example, statewide or nationwide averages. Any unilateral change to an insured's estimated mileage, done without the insured's knowledge, is impermissible. California average miles may be acceptable in certain limited circumstances. For example, an insurer may use the California estimate until an insured provides mileage information. Additionally, if specific information provided (such as miles driven between home and work) conflicts with the total mileage estimate, the insurer may use the higher provable mileage if the insured has an opportunity to rebut the insurer's calculated mileage.
Any questions regarding this Notice can be addressed to:
Chief, Rate Filing Bureau
California Department of Insurance
45 Fremont Street, 23rd Floor
San Francisco, CA 94105